EUR/USD Daily Technical Analysis for August 31, 2017

The dollar gained traction as the EUR/USD currency pair gave back most of its recent gains following a stronger than expected U.S. private payroll report and an upward revision to U.S. Q2 GDP.  Sentiment in Europe came in stronger than expected while inflation in German moved higher toward the ECB’s target.

Technicals

The EUR/USD moved lower on Wednesday, giving back most of the weekly gains. Support on the currency pair is seen near the 10-day moving average at 1.1841.  Resistance is seen near the weekly highs at 1.2070. Tuesday’s doji day which reflected indecision, shows that the rally in the EUR/USD was not secure. Momentum is positive, as the MACD (moving average convergence divergence) index recently generated a crossover buy signal. The MACD histogram is printing in the black with an upward sloping trajectory that points to a higher exchange rate.

Private Payrolls Surged

U.S. ADP reported private payrolls surged 237k in August after an upwardly revised 201k July gain, which compares to expectations of a 170K increase. The service providing sector saw a 204k gain, while employment in the goods producing sector rose 33k. Details on the goods sector showed manufacturing jobs increased 16k, with construction up a hefty 18k, with a 1k drop in mining. A 56k climb in transport supported the strength in the service sector, with leisure adding 51k, while education rose 45k. Professional business services added 39k. The better than expected data will add upside risk to the August payroll forecast, which currently stands at 190k.

GDP Increased More than Expected

U.S. Q2 GDP growth was revised up to 3.0% from the initial 2.6% pace, and compares to the 1.2% Q1 rate. It’s the first 3-handle on growth since Q1 2015. Personal consumption was bumped high to 3.3% from 2.8%. Business fixed investment was boosted to 3.6% from 2.2%, with nonresidential spending growth at 6.9% versus the prior 5.2% and residential at -6.5% from -6.8%. Government spending dipped 0.3% versus the prior 0.7% growth pace. Inventories added $0.6 billion versus the prior -$1.5 billion  contraction rate. Net exports added $8.8 billion from $7.3 billion previously. The chain price index was steady at 1.0%, with the core unchanged at 0.9% as well. Corporate profits posted a 0.8% gain versus the prior -2.6%.

The Mortgage Market Contracted

U.S. MBA mortgage market index sank 2.3% in data released earlier, along side a 2.7% drop in the purchase index and a 2.0 decline in the refinancing index for the week ended August 25. The average 30-year fixed rate mortgage fell 1 basis point to 4.11% to mark the lowest level since the election, as Jackson Hole, political strife and Harvey kept a lid on yields. The housing sector has otherwise maintained momentum and should bounce back again after severe disruptions in the Texas-Gulf region wash through following the Hurricane.

Eurozone ESI Confidence Was Stronger Than Expected

Eurozone ESI economic confidence much stronger than anticipated. The headline reading jumped to 111.9 the highest since July 2007. Manufacturing, as well as services and consumer confidence improved in August and the data, confirms that overall growth remained strong in the summer quarter, which will back the ECB’s gradual move away from adding ever more stimulus. The September staff projections could well lift the short-term growth forecast for this year, even if geopolitical risks and the stalling Brexit talks continue to cast a shadow over the medium-term outlook that will back the call for more flexibility on monetary policy from ECB council members going ahead.

German Inflation Jumped

German HICP inflation jumped to 1.8% year over year from 1.5% year over year in the previous month, with prices up 0.2% month over month. A slightly higher than anticipated number and together with the sharp acceleration in the Spanish HICP rate to 2.0% year over year, the data suggests Eurozone numbers tomorrow may well surprise on the upside.

German state inflation data picked up in August. CPI data from German states confirm expectations for an acceleration in the pan-German headline CPI rate and we continue to see HICP rising to 1.7 %year over year in line with expectations, from 1.5% year over year in the previous month. Preliminary Spanish HICP, released earlier today, showed the headline rate already touching the 2.0% year over year upper limit for price stability, but while the overall Eurozone number, due Friday, is expected to nudge higher, it will likely remain firmly below the 2% limit.

Spanish Inflation Increased

Spanish HICP jumps to 2.0% year over year in August, from 1.7% year over year in the previous month and higher than anticipated. Ahead of the release of German preliminary HICP numbers, the data, which lifts the Spanish headline rate to the ECB’s upper limit for price stability, will add to the arguments of the hawks at the ECB.